Federal housing solutions: lots of talk, not much action

The message from Prime Minister JustinTrudeauto those worried they'll never own a home in Vancouver or Toronto was clear on Friday.

He feels your pain, but there is no easy answer andthere is a great risk of making a serious mistake should his government attempt to influence housingprices.

Trudeaugot a close-up look at the most expensive housing market in the country when he visited Vancouverand although housing affordability was at the top of his agenda, presentinga solution was not.

"Everyone knows what is happening. We can't afford homes in Vancouver ... We need to make sure that any action is not going to make the situation worse," saidTrudeauon CBCRadio'sThe Early Edition.

"The law of unintended consequences is something as complex as housing markets, so that is where collaboration and coordination between both the federal government, the provincial government and municipal governments is going to be essential."

Trudeauhas two arguments for his government's inaction on cooling the housing market. Pulling what he calls a "federal lever"could trigger falling prices in markets that are already depressed including Montreal, Calgary and Halifax.

The other concern is protecting homeowners who have taken a risk and bought houses in Vancouver and Toronto and are now carrying, in some cases, more than a million dollars in mortgage debt.

"Getting the balance right will be very important,"Trudeausaid.

Targeting absentee owners

But why not implement a policy that would target absentee owners of luxury properties in Vancouver and Toronto.

There is precedent for this kind of federal intervention. In March, Trudeau's government addressed concerns about Employment Insurance in 12 parts of the country that were hit hard by the economic downturn.

Regions with the highest percentage of people applying for EI qualified for reduced wait periods and people in those regions were allowed to collect EI for a longer time.

Housing experts in B.C. have suggested something similar for Metro Vancouver.

Over40 economists have supported a policy called the B.C. Housing Affordability Fund. The fund would be financed by a new 1.5 per cent property surcharge on residential real estate.

The federal government would have the ability to work with certain jurisdictions about whether they would implement thetax.

The example the economists give in their policy paper is that owners of a $1 millionhome would be required to provide a $15,000 contribution each year, but if they paidmore than $15,000 in income taxes in Canada,they would be exempt.

Such a scheme would target foreign investors who pay no income tax in Canada, and their money would be redistributed to all taxpayers in the area.

No shortageof ideas

There are more ideas that have been directed towardthe federal government.

Sauder School of Business professor Tom Davidoff has become one of the leading voices in the region on ideas that can be implemented in Metro Vancouver.

When he sat alongsideTrudeauon Friday as part of a roundtable on housing, he brought forward two ideas that won't solve the entire housing crisisbut are at least a step towards some sort of solution.

The chief concern amongmost economists is that tax policy, and, in turn, Canadian political leaders, have bent over backwardsto create a positive tax environment for foreign investors, while punishinglocals who live in their homes.

But Davidoff points out, in the United States, policymakers have applied exemptions to interest and property taxesthat are available to locals, but not tonon-taxpayers.

Then there is density, which, in itself,is a regional issue.

Davidoff has argued the federal government could step in and determine that in the best interests of the country certain areas would not be allowed to put restrictions on zoning.

That would be bad news for NIMBYs and a relief for Vancouver Mayor Gregor Robertson, who Davidoff argues, now has his hands tied by voters who are not interested intheir predominantly residential neighbourhoods becomingmore densely populated.

"If you build enough of them [condos], it starts out as housing for the nearly affluent and becomes middle class housing. But that is banned from much of Vancouver," said Davidoff.

What stood out from Trudeau`s trip to Vancouver is this dark assessment from the prime minister about the current state of the housing market being "on a trajectory that doesn't have any good outcomes."

But it didn`t have to be thatway.

Ironically, fiveyears ago almost to the day, the then-governor of the Bank of Canada, Mark Carney, the federal government's top advisor on the economy,spoke in Vancouver and sentthis message warning of the effects "Asian wealth" was having on themarket.

"The risk is that expectations become extrapolative, prompting the classic market emotions of greed and fear greed among speculators and investors and fear among households that getting a foot on the property ladder is a now-or-never proposition," he said.

AdviceTrudeauwas not, at the time, in a position to take, but a problem he nonetheless inherited and must now try to fix.